EU: Europe Stumbles Toward a Tighter Union - by Andrew Davis

Starting in the 1950s, Europe’s leaders edged closer. First came the European coal and steel cartel. Then the Common Market. Then the European Union, which now includes 27 states. Then the disappearance of many border controls inside the EU. Finally, the euro. Each step of the way the nations of Europe gave up a little more sovereignty, deferring to EU officials in Brussels on regulatory issues, honoring the rulings of the top EU court, and—with some exceptions such as Britain—yielding the power to set interest rates to the European Central Bank.

One thing no one surrendered: power over the national budget. Fiscal union, where a central authority has final say over each country’s spending and taxing, was never a possibility. Politically at least, it was a move too far: To control the budget was to control the nation itself.

Now the idea is being debated like never before. The desperate rescue attempts launched in Europe in the last two years mark a step toward fiscal union, though Germany, the EU’s most important member, still opposes it. That opposition means that true fiscal union “is really, really still a long way off,” says Fabio Fois, an economist at Barclays Capital in London. Still, the Europeans seem to be headed in that direction.

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